consultants are sandburs

Saturday, May 17, 2014

Paul Krause getting screwed by Elk River?

Strib reporting here. Hey, if the City of Elk River made any payment after five years from the date of the initial contract, isn't that a novation? A novation in equity, if not at law.

If it is not legal to extend the contract beyond five years, what else might it be but a novation, beginning a new five year or shorter term at the time a last payment to Krause was made, with $1.5 million due part-way through any succeeding period of five years after the last payment was tendered and accepted?

Inferring equitable novation terms from the prior defective contract makes sense. The basic promise and acceptance has to be protected. Cities cannot skate obligations on technicalities. That is unwise policy. When the deal was cut, which party suggested it be via a contract for deed vs an immediate deed transfer and mortgage? Did the town lead the landowner down the primrose path? What was course of negotiation and then course of performance? Why a lease first, then a transfer, by contract for a deed? Was Krause previously coerced by the city to abandon development goals, doing so in reliance upon a city promise, and one arguably all to cleverly couched? That seems how Strib is reporting it, except for initial course of negotiation detail.

To raise that technical a defense, now after well more than five years have passed and the big balloon payment obligation was willfully defaulted, deviating at the big-balloon point from the initial contract, (if there was payment of any kind after five years), seems unconscionable.

The courts should not permit that.

Of course, the courts can do as they choose, and if Elk River is acting as the report suggests, I hope Krause, who has sued, WINS A FULL RECOVERY AND THE CASE IS PUBLISHED AS PRECEDENT. In this instance force specific performance?

Of course, Paul Levy's report for Strib necessarily is terse and lacks some detail of course of negotiation/dealing, leaving readers to guess.

Last, why is LMC providing the defense [presumably via some LMCIT contract]?

Insurance coverage providing a defense for a party showing bad faith seems like it should be held void as against public policy. Encouraging bad faith, even its mere appearance on the part of a municipality, is not good policy.

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